Deutsche Telekom’s Net Profit Drops 14% Under Weight of Investments

By Mark Scott

Nov. 6, 2014

LONDON — Deutsche Telekom, Europe’s largest telecommunications carrier by revenue, reported on Thursday a 14 percent decline in net profit during the third quarter, as investments in its core markets in Germany and the United States weighed on the company’s performance.

The carrier, a former German monopoly, is facing increased competition on both sides of the Atlantic. It has outlined a series of infrastructure investments in high-speed mobile and broadband networks to keep pace with rivals like Verizon Wireless in the United States and Vodafone in Britain.

The company also reported a slight rise in its third-quarter revenue to 15.6 billion euros, or $19.5 billion. Despite the fall in its net profit, it continued to add customers to T-Mobile US, its American subsidiary that now represents 35 percent of its quarterly revenue.

Deutsche Telekom is jockeying for position before expected changes in how Europe’s telecom industry is regulated. That may lead to another round of consolidation between mobile carriers and cable operations as well as greater spending to keep pace with consumers’ appetite for mobile access.

These investments, coupled with continuing economic malaise in some of the company’s European markets, led to a drop in its net profit for the three months through Sept. 30 to €506 million, or $633 million, compared with the same period last year. The figure included the sale of its Bulgarian assets.

“The challenges vary regionally, but we are clearly making progress everywhere,” Deutsche Telekom’s chief executive, Timotheus Höttges, said on Thursday.

In October, Deutsche Telekom rejected an approach to take over T-Mobile US by the French telecommunications company Iliad, and it said last week that its American subsidiary gained 1.4 million wireless customers. But because of continuing investment to attract new customers, pretax profit for T-Mobile US fell 15 percent to €869 million compared with the same period last year. Revenue over the same period rose 8.7 percent to €5.5 billion.

In Germany, where the likes of Telefónica of Spain are also investing heavily in Europe’s largest economy, Deutsche Telekom has been forced to keep pace with its own infrastructure upgrades.

These investments and cutthroat pricing competition from rivals led to a 1.4 percent decline in the company’s third-quarter pretax profit to €2.3 billion. Revenue also fell 1.5 percent to €5.6 billion.

Deutsche Telekom said on Thursday that continued economic troubles in other European countries — and competition among carriers for customers — weighed down its operations in countries like Greece and Slovakia.

The company’s pretax income in its non-German European operations fell 10.1 percent to €1.1 billion as revenue for the division fell 3.6 percent to €3.3 billion.